What is an Option?

An Option is a contractual right to buy or sell property within certain parameters such as time and/ or triggering events set out in a Deed

There are three (3) types of Options used in transacting Real Property:


  1. Call Option – Requires someone to purchase the property. It is a right granted by a party owning property (the ‘Grantor’) to another party (the ‘Grantee’) to purchase that property on terms and conditions set out in the Option Deed. There is usually a limit to how long this is enforceable and is usually irrevocable during that time (‘the Option Period’). A sum of money (the ‘Option Fee’) will be paid to secure the right. A Call Option is not usually deemed to be a Transfer as no property moves from one party to the other. It should however create an equitable interest in the property enabling the grantee of the Option to lodge a Caveat over the title of the property to protect this interest.


  1. Put Option – Requires one party to sell the property to another party for a specific amount during a specific time. Generally it is a role reversal of who can require the sale to be triggered from a call option. It does not however create an equitable interest in the property as the Grantee should already own the property. It is uncommon for put options to exist in real estate transactions by themselves; and


  1. Put & Call Option – Requires one party to buy and one party to sell the property. This is a mutual agreement creating the effect of a Contract for the Sale and Purchase of property with the added bonus of delaying the formation of the final Contract and often permitting an on-sale or assignment. As the elements of a Call Option are contained within the Deed, it should also have the ability to create an equitable interest in the property and provide a caveatable interest.


Stamp Duty

Under current legislation, an Option to purchase land in New South Wales is deemed to be dutiable property. Liability to pay stamp duty arises when a dutiable transaction occurs. A Transfer is a dutiable Transaction.

The “consideration” (the ‘Option Fee’) for the option can be nominal, maybe as little as $10. This means the only stamp duty payable is negligible until the contract comes into existence, after the exercise of either one or both options. This has an obvious attraction to purchasers of development projects where the approval process extends to a longer period of time because the payment of substantial stamp duty on the actual purchase price is deferred.

Put and Call options also allow greater flexibility to the purchaser in that they can usually transfer their interest under the option regarding stamp duty and legal overheads far more efficiently than if they had to sell the land or transfer the interest under a purchase contract. Most options of this type also contain provisions allowing the purchaser to “nominate” a subsequent party to be the ultimate purchaser

Options are entered into so that duty on a purchase of a property can be deferred by the granting of a Put & Call Option as the final Contract and/or Transfer does not occur upon the formation of the Option Deed.

Stamp duty implications also arise when assigning an option or appointing a nominee to exercise an option. The stamp duty liability can be significant and specialist stamp duty advice should be sought from an accountant if an assignment or nomination is considered.



A purchaser who has entered into a Call Option Deed, but has not yet exercised the Call Option, may be entitled to assign its rights under the Call Option Deed to a third party.

On completion of the assignment, the third party will step into the shoes of the purchaser as if it were the original purchaser under the Call Option Deed. The third party and the vendor then proceed with the transaction in accordance with the terms of the Call Option Deed.

If an Option is assigned to an unrelated third party, it is likely to be deemed a Transfer, unless one of the legislated exemptions apply.

In Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728 at 730 Ormiston JA defined transfer as follows:

There are two parties to every transfer, the transferor who disposes of all rights in the transferred property and the transferee who receives or acquires them so as thereafter to have the power to exercise effectively the same rights in the future. For an instrument properly to be characterised as a ‘transfer’ on must be able to find that the property has passed from transferor to transferee so that the property is vested in a transferee who for all practical purposes is then capable of exercising the same rights as were capable of being exercised by the transferor before the transfer was executed.”

Section 107 of the Duties Act 1997 (NSW) deals with: Assignment of rights under call option dutiable as transfer. The transfer of dutiable property (including dutiable property that is residential-related property) is taken to occur when the assignment is made, regardless of when the Call Option or Put Option is exercisable.

Section 108 goes on to place the liability to pay Call Option Assignment Duty of the party assigning their rights. This captures the duty that is payable by the Grantee that would have otherwise been delayed until exercise of the option.

The option holder must pay Call Option Assignment Duty, as a consequence of this transaction, as if the transfer of the option were a transfer of the land. Duty is payable on the dutiable value of the land.

In addition to this, the transferee of the option must pay duty on the transfer of the option. Duty is payable on the dutiable value of the option.


Option Deeds regularly include a provision for the Grantee to nominate an entity to exercise the option, or become the Purchaser under the Contract that comes into existence when the option is exercised.

The appointment of a nominee is different to an assignment (where the purchaser assigns its rights under the Call Option Deed). If a nominee does exercise the Call Option, the contract which comes into existence will be between the nominee and the vendor, instead of between the purchaser and the vendor. This is generally not deemed to be a Transfer.

It is important for each transaction to be assessed and adequately advised on by specialists in Tax and Property.

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